Investors considering the coming decade can rely on one clear outcome from the great coronavirus shutdown: debt and plenty of it, with central banks bearing a significant amount of that burden.
The pandemic has triggered trillions of dollars in emergency spending. No one can quibble with governments trying to soften blows from shutdowns of economic activity. Nor can they argue with companies raising cash reserves so that they can bridge gaps in revenues to make it to the eventual restoration of business activity.
The result is a likely surge of 10 to 15 percentage points in the ratio of debt to economic output for many countries as they finance extra spending. This week, Moody’s estimated that the US government’s announced stimulus efforts “along with materially weaker revenues and growth” stand to propel the federal fiscal deficit from 4.6 per cent of gross domestic product last year to more than 15 per cent this year.